HomeMy WebLinkAboutFCS-17-164 - Council Remuneration - Elimination of 1/3 Tax Free Portion & OMERS Enrolment
REPORT TO: Finance and Corporate Services Committee
DATE OF MEETING: October 2, 2017
SUBMITTED BY: Brenda Johnson, Director of Accounting, 519-741-2200-7647
PREPARED BY: Brenda Johnson, Director of Accounting, 519-741-2200-7647
WARD(S) INVOLVED: All
DATE OF REPORT: September 18, 2017
REPORT NO.: FCS-17-164
SUBJECT: Council Remuneration Elimination of 1/3 Tax Free Portion &
OMERS Enrolment
___________________________________________________________________________
RECOMMENDATION:
That beginning January 1, 2019, the 1/3 tax free portion of Council remuneration
be eliminated in compliance with Federal legislation as outlined in staff report
FCS-17-164.
And further, that the current matching RRSP program for Councillors be replaced
with participation in the OMERS program on a cost-neutral basis to the City as of
November 30, 2018.
BACKGROUND:
The March 22, 2017 federal budget announcement removed the tax exemptions for
expense allowances paid to municipal office-holders, with an implementation date of
January 1, 2019. Currently, members of Kitchener City Council earn one-third of their
compensation tax free as permitted by the Ontario Municipal Act.
The purpose of this report is to outline the approach to implement the change and
quantify the financial impact.It also outlines a proposed administrative change to
transition the current matching RRSP contribution program for Councillors to the
OMERS program on a cost-neutral basis.
REPORT:
The Region of Waterloo voluntarily eliminated the one-third tax exemption for its Council
in 2003. In preparing this report,
implement the change and also consulted with the other area municipalities.
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Council positions are considered part-time roles and, as such, Councillors typically have
other sources of income. In order to ensure that after-
not reduced by virtue of the legislated change, this other income must somehow be
taken into consideration when converting the 1/3 tax-free portion of Council
compensation to become taxable.
The proposed implementation approach is to gross up the 1/3 tax-free portion of salary
by 43.41%, which is the effective tax rate which applies when combining the municipal
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salary with an average annual local personal income of $55k.This is similar to, but
slightly less than, the rate by which the 1/3 tax-free portion of Regional Council salaries
by the Region at that time was 46.41%.
The other options considered, but ruled out for reasons identified below, were:
Maintain current gross pay--free portion when it
becomes taxable
members of Council. Given that previous Council compensation decisions had
after-tax income, this approach would be inconsistent with
those prior decisions.
-free portion of Council pay at the tax rates applicable to
that pay only, assuming no other income this would result in a reduction in
for members of Council with other sources of income. This is
not recommended given that Council positions are considered part-time and it is
understood that Councillors have other sources of income.
-free portion of Council pay at the highest marginal tax rate
(presently 53.53%) this was the approach adopted by the Region in 2003, but
is not recommended because the highest marginal tax bracket is now higher
(starts at $220,000) and also has a higher marginal rate than existed in 2003.
That said, this is the only option which would guarantee that there is no reduction
with other sources of income.
OMERS
Staff recommends that the existing matching RRSP program for Councillors be replaced
with enrolment in the OMERS program effective for the next term of Council. The
RRSP matching program is based on the OMERS contribution rates so there is no
financial impact to the City. The benefits of the change are simplified plan
administration and access to substantial OMERS expertise and investment returns
which are superior to retail investment products. Current members of Council (with the
exception of the Mayor) will have a choice whether to opt into OMERS or remain on the
matching RRSP program. The Mayor, and new members of Council elected in 2018 and
beyond will be enrolled in OMERS in accordance with OMERS rules.
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ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
vision through the delivery of core service.
FINANCIAL IMPLICATIONS:
Existing remuneration rates for Mayor and Members of Council are $78,809 and
$40,545 respectively. The methodology proposed to eliminate the 1/3 non-taxable
remuneration, using the effective tax rate as outlined above, results in an adjusted
remuneration of $98,960 and $50,912. The total impact of this change is to increase
the citoperating budget by approximately $123,000 starting in 2019. This increase
does not include fringe benefit rates of 29%, which represent approximately $36,000.
These increases will be factored into 2019 budget targets.
There is no financial impact associated with transitioning the matching RRSP program
for Councillors to OMERS as the contribution rates are the same.
COMMUNITY ENGAGEMENT:
INFORM
advance of the council / committee meeting.
ACKNOWLEDGED BY: Mike Goldrup,Acting Deputy CAO, Finance and Corporate
Services
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